by Alan Joch
Southwest Airlines reaps big rewards, transforming a successful frequent flyer program into a superior customer experience.
Location: Dallas, Texas
Annual revenue: US$17.1 billion in 2012
Oracle products: Siebel Customer Relationship Management applications, Siebel Loyalty Manager, Siebel Contact Center, Oracle Loyalty Analytics, Oracle Social Relationship Management
Senior Director of Loyalty and Partnerships
Length of tenure: 11 years
Education: BA in marketing, Mays Business School, Texas A&M University
With these admonitions in mind, a steering committee of business, marketing, and IT professionals crafted an exhaustively researched plan to restructure the loyalty program in ways that would deliver new benefits to travelers and address the airline’s transformation over the last two decades. An added goal was to embrace all the recent transformational technology changes that promised to further enhance rewards programs, including social media, sophisticated data analysis, and ubiquitous mobility, which were fundamentally changing how the airline served its customers.
The goals were lofty, but so too were the risks, especially for a company long recognized by travelers and independent analysts as a leader in customer experience. Missteps were not an option, and fortunately, the committee had an ace in the hole—a corporate tradition of keeping the needs of consumers front and center. “Because of that, we ended up with a win/win,” Green says. “Customers are receiving greater value by being part of the enhanced loyalty program, and financially it’s been a benefit for Southwest.”A Customer Experience Leader
Customer experience, the ability to routinely create positive interactions between companies and consumers to promote consumer loyalty, is becoming a competitive differentiator across many types of vertical markets. The employees of Southwest recently burnished their collective reputation as proven leaders in this area when the company ranked at the top of the airline industry in the 2013 Temkin Experience Ratings, which looked at the customer experience performance of 246 companies across 19 industries. “At the end of the day, what separates those firms at the top from the rest of the firms is their culture and focus on customers,” says Bruce Temkin, managing partner and customer experience transformist at the Temkin Group. “You can’t fix one part of your business to try to make customer experience better if your organization isn’t culturally aligned to do that.”
Specifically, he says, the companies with high customer-experience scores excel in four areas: purposeful leadership, compelling brand values, employee engagement, and customer connectedness, where insights about clients drive the decisions company managers make at all levels of the organization. “Certainly the folks at Southwest do all of these things really well,” Temkin says.
So if rankings like these have long shown that Southwest already had an impressive track record for satisfying customers, why change something as fundamental as the frequent flyer program? A big reason was that Southwest had become a different carrier since Rapid Rewards was created in the 1990s. At that time, the company specialized in regional, short-haul flights, and rewards were allocated accordingly—the program awarded a free ticket whenever a customer racked up 16 flight segments. But as the Southwest route map expanded and the airline became a medium- to long-haul carrier—and eventually one of the largest domestic airlines in the United States—managers needed to more accurately account for miles flown. In addition, the old program didn’t give customers opportunities for using Southwest credits for hotels, car rentals, and other partner rewards.Customers in Control
Change was clearly required, but when it came to creating what became the All New Rapid Rewards program, the steering committee at Southwest didn’t leave success to chance. During the design and rollout phases of the program, the business staff conducted extensive qualitative and quantitative research, including conjoined studies to gauge customer reactions to new features and to forecast how well travelers would accept them. “There were lots of spreadsheets and models, but the most important consideration was how to provide value to the customer,” Green explains. So once the best ideas collected from the research were incorporated into the program’s design, the group went a step further. “We took what we designed and put it in front of customers to make sure it was going to be something that resonated with them,” he says.
We’ll be looking at the entire spectrum, from planning and shopping to traveling and the post-travel experience, to understand how can we enhance each step for the customer. In time, this will help us transform the way customers travel.”
As a result, the steering committee changed how points turn into rewards, assigning points based on what travelers pay for their fare. The new earnings structure awards travelers three different point levels depending on the value of each fare they purchase. The new program also addresses one of the long-standing complaints travelers have had with rewards incentives throughout the industry: restrictions on reward seats. The All New Rapid Rewards program doesn’t include blackout dates and gives redeemers access to any available seat, regardless of the price. Program managers at Southwest have also expanded the company’s branded credit card, awarding a point for every dollar spent and enabling customers to exchange points for international flights, hotel rooms, and other perks available from partners.
“It’s very different from a miles-based program,” says Jonathan Clarkson, director, Rapid Rewards, at Southwest. He adds that since the All New Rapid Rewards program adopted a new approach to valuing miles, other large carriers have migrated to similar earnings structures.
Customers may have been the focus for these changes, but there were also some practical business reasons for modernizing the program. Business managers at the airline wanted to eliminate opportunities for fliers to “earn short and burn long,” in industry parlance. In the past, customers could accrue 16 credits on short, inexpensive flights and then use the free ticket for cross-country trips that were the costliest for the airline.IT Gets a Makeover
To ensure that it could support the new program and an expected influx of participants, the cross-departmental team at Southwest reexamined the IT infrastructure that underpinned loyalty programs and eventually decided on an ambitious modernization plan.
The decision was made partly to address a number of challenges the IT staff would face to get the new loyalty program underway. First, the old IT platform was homegrown, developed with a series of expansions and customizations over the course of two decades. Another problem was the complex interfaces that connected the rewards platform and other enterprise applications. “We have to interface with a large number of systems, including financial accounting, customer service applications, reservations, kiosks, Southwest.com, the voice response system, and the mobile devices that customers use,” says Murugesan Paramasivam, senior manager of technology at Southwest.
The Southwest technical staff quickly decided that they no longer wanted to support a homegrown system, and after an extensive evaluation of commercial products they selected Oracle’s Siebel Customer Relationship Management applications, in particular Siebel Loyalty Manager and Siebel Contact Center, and Oracle Loyalty Analytics. For the first time in Southwest’s history, the Oracle solution provided a global customer repository for the airline’s current loyalty members and those not yet in the program.
Number of customers that flew Southwest Airlines in 2012
“Most third-party loyalty products couldn’t handle the scale that we required,” says Kathleen Wayton, vice president of technology, commercial portfolio, at Southwest. “We also needed flexibility and high performance, without having to make a ton of modifications. We wanted to keep the new solution as standard as possible to simplify future upgrades.”
The Oracle solution also addressed the interface challenges that plagued the airline’s technical staff. “We now utilize Web services to connect with the reservation system and to other internal Southwest systems,” Wayton explains. Web services are also helping the airline’s personnel integrate All New Rapid Rewards with a loyalty program at AirTran Airways, a wholly owned subsidiary of Southwest. Customers can now book reward tickets on either airline by transferring their loyalty currency between the carriers.
“The infrastructure that we sit on today is vastly more sophisticated than what we had for the old program,” says Joe Migis, senior director of IT at Southwest. “And just as importantly, the new infrastructure is an enterprisewide solution that we can build on for the future.”
Over the past two years, airline customers have responded enthusiastically to the loyalty program changes. Marketing managers at Southwest conduct ongoing measurements of both the company’s overall brand health and that of the rewards program. Clarkson says he’s seeing record numbers of people joining the plan compared to the old program.
Significantly, a large percentage of these new inductees are business travelers, a group that the airline’s business staff targeted for growth. “Now business travelers can fly Southwest a small number of times each year, but because of the earnings structure, accumulate points for a multitude of rewards,” Clarkson says. “It’s highly conceivable that a business traveler could fly two round-trips and have enough points to redeem for a short round-trip.”
Number of daily flights flown by Southwest Airlines
Business professionals at Southwest have also seen a healthy increase in revenues as a result of the modernization. “We exceeded all of the metrics we’ve set in place for ourselves in the first year out of the gate,” Green says. “And in the second year, we exceeded expectations as well.”A Plan for the Future
The Southwest staff now believes it has a solid foundation in place not only to grow the All New Rapid Rewards program but also to create new ways to enhance customer experience. A central customer database will be pivotal in these future efforts. The repository allows representatives in contact centers to see the same information that reservation agents and other Southwest staff members see. This mitigates one of the biggest challenges associated with successful customer experience—integrating all the various touchpoints to make sure consumers always get consistent information, no matter how they interact with a company. The central database will also be a foundation for identifying upselling and cross-selling opportunities.
Wayton sees the power of centralized customer information as a competitive edge for the company. “A lot of other airlines don’t have this, so we’re ahead of the game in that area,” she says. “The challenge now is to go to the next step to make customer interactions more personalized. We’re looking into this across the board: we’ve got our social media team, our marketing team, and our technology teams all focused on this area. We’ll be looking at the entire spectrum, from planning and shopping to traveling and the post-travel experience, to understand how can we enhance each step for the customer. In time, this will help us transform the way customers travel.”
Photography by Shutterstock